SEPTEMBER 2011 TRADE INSTRUCTIONS
OverviewStart by re-reading last month's entry. Little has changed since the end of August. China's economy is showing definite signs of slowing down, both in response to the slowing global economy and in response to government money-tightening measures to put a lid on inflation.
The slowing world economy has dampened demand for commodities, the stuff from which all goods are made. Thus we have a sell order for commodities (DJP) this month. That leaves Pro-Folio holding only US Treasury bonds (IEF) as of the market open Monday.
Now is not a time for risk taking; most global asset classes are below the levels they held 6 months ago and are showing no significant signs of upward momentum. Now is the time to hold cash or guaranteed money and wait for the right time to take risk again. My perception and/or opinion is that it will be a period of months before we begin to see appreciable positive performance in most risk assets. Be prepared to sit tight for a while.
The Pro-Folio model evaluates its holdings on a monthly basis. As of the last trading day of September (30th), we have the following trade signals:
SPY - AVOID
EFA - AVOID
IYR - AVOID
DJP - SELL - Threshold: 48.80 Price: 41.76
IEF - HOLD
For existing investors:
Sell your entire positions in DJP. You should remain fully invested in the remaining 1 holding of the Pro-Folio model as shown above.
For new investors:
If you are new to Pro-Folio this month, you should divide your portfolio into 5 equal parts, and invest an equal amount of money in each of the securities shown above marked "HOLD" or "BUY". Because you didn't invest in the components of the model at the time when the buy signals first turned positive, your returns on these initial trades may not be reflective of model's typical expected returns. DO NOT invest in SPY, EFA, DJP, or IYR right now. Stand by with that portion of your portfolio in cash, awaiting the buy signal.
These are very uncertain times in the financial markets. US treasury bonds, despite all the debate and worry about our debt ceiling and such, are still considered the safest financial instrument in times of uncertainty, as demonstrated by the recent increases in US bond prices. The world's investors are running to safety.
Fortunately for us, the Pro-Folio model has proven its worth over 36 years including the 2008 market crash, so we can continue to follow it precisely and expect that the value of our holdings will be preserved.